explain project cost-benefit analysis?

Expert Solution

The main aim for any project/business is to make profits and tools like CBA: Cost benefit analysis are used to measure the worth of any project. It measures all the benefits (positives) and costs (negatives) for any project in monetory terms and tells a project manager what steps can produce maximum benefits to a particular project.

Some of the key indicators used by CBA to determine a project's worth are:
1) Net Present value (NPV): It is the sum of all costs and benefits evaluated in present day.
2) Internal rate of return (IRR): As the name suggests, it measures the benefits against the costs invested.
3) Ratio of benefits to costs is another indicator used.

Apart from this, break even analysis is also used. It is explained in the below attachment:

It helps in determining the point after which benefits overpowers costs and hence if a project can produce that specific amount of output to overcome costs as defined by point P in the above diagram, then the project is worth it.

If you need more explanation, do let me know in the comments section :)

keosha answered 8 months ago

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